The Group derives its income principally from its network of distribution channels, including spas and concessionary counters in department stores. As at 31 December 2019, there were 1,172 spas, 2 medical cosmetology centers and 9 concessionary counters. Of these, 1,161 were franchised spas, while 11 spas, 2 medical cosmetology centers and 9 concessionary counters were directly operated by the Group. No concessionary counters were entrusted to third-party operators. Franchised spas are owned by the franchisees who are responsible for the capital investment in these spas. They are obliged to use only Natural Beauty or “NB” products in their spas. A wide array of services including hydrotherapy, facial treatment, body care and skin care analysis, are provided in all spas, while skin care analysis is widely available at the concessionary counters in department stores. Group-wide, a total of 143 new stores were opened and 22 stores were closed during the year ended 31 December 2019. Average sales per store increased from HK$349,000 in 2018 to HK$397,000 in 2019.
Research and Development
The Group puts significant emphasis on research and development which allows it to maintain its competitive edge, continuously improve the quality of its existing products and develop new products. The Group has been collaborating with overseas skin-care companies on technological development. The bio-technology materials the Group use for its NB products are imported from Europe, Japan and Australia. The Group’s research and development team comprises a number of overseas consultants with experience and expertise in cosmetics, medicine, pharmacy and bio-chemistry. NB products are constantly enhanced and modified by the application of new ingredients developed by the team. The Group draws on its collaboration of experts with different expertise and experiences, together with the Group’s 40-year-plus industry experience and knowledge to continue to create high-quality beauty and skin care products. NB principally uses natural ingredients to manufacture products and adopts special formulae to cater to the specific needs of women with delicate skin. NB products accommodate the natural metabolism of skin with long-lasting effects. Natural Beauty has collaborated with a leading researcher in the field of human genome and stem cell technology for the development of an anti-aging NB-1 product family and other products for spot removal, whitening, allergy-resistance and slimming. The stem cell technology is patented in the United States to protect the uniqueness of the NB-1 products.
In 2019, the Group’s flagship NB-1 series products accounted for 19.2% of total product sales, which reached HK$80.5 million. Based on the continuous research and strategic planning of the beauty market, the Group kept up with the latest market trend and successfully launched the resveratrol beverage, which generated HK$15.1 million for the healthy food category, and increased the share of this category in our total product sales by 3.6%. With the promotion of resveratrol anti-oxidation and rejuvenation, the Group successfully launched the resveratrol skincare series, with a sales of HK38.6 million, accounting for 9.2% of the total product sales. In the same year, the Group successfully introduced holographic quantum robot and Natural Beauty seven function instruments, so as to improve the Group’s dominant position in the beauty and spa market, in order to better promote the spread of brand reputation. In 2020, the Group will actively expand other channels, such as cross-border product cooperation with countries such as Belgium and South Korea. Meanwhile, it has established a new young brand Bio-up and open a flagship store in Shanghai SML center to attract young customers and young entrepreneurs to join the Group.
As at 31 December 2019, the Group had a total of 606 employees, of whom 380 were based in the PRC, 216 in Taiwan and 10 in other countries and regions. Total remuneration (excluding directors’ emoluments) in 2019 was approximately HK$123.1 million (HK$105.7 million in 2018), including retirement benefit related costs of HK$8.9 million (HK$8.6 million in 2018). Competitive remuneration packages are maintained to attract, retain and motivate capable staff members and are reviewed on a regular basis. The Group maintains good relations with its employees and is committed to their training and development. Professional training courses are offered to beauticians employed by the Group and to franchisees on a regular basis. Capital Expenditures The Group’s capital expenditure of HK$76.4 million in 2019 was mainly related to the new plant construction in the PRC amounting to HK$60.7 million, opening of new stores, renovation and equipment amounting to HK$6.4 million and office and self-owned spa centre renovation amounting to HK$9.3 million.
Right-of-use Assets and Lease Liability
Hong Kong Financial Reporting Standards No. 16 – Lease (HKFRS 16) came into effect on 1 January 2019. At the commencement date, the Group should recognise a right-of-use asset and a lease liability. The related right-to-use assets and lease liabilities are mainly located in the PRC and Taiwan. As at 31 December 2019, the Group’s right-of-use assets were HK$76.8 million (HK$64.9 million as at 1 January 2019) and its lease liabilities were HK$27.9 million (HK$14.9 million as at 1 January 2019). In 2019, depreciation charges of right-of-use assets amounted to HK$6.4 million and interest charges of lease liabilities amounted to HK$1.2 million.
During the period, the Group’s business development continued to use group resources to improve service quality, product research, multi-channel layout, franchising, e-commerce, telemarketing, TV shopping, and foundry businesses, which grew rapidly through revenue diversification.
Important market development strategy – Taiwan: Using the Group’s abundant media resources to advertise its brands and products, and successfully selling the Group’s products in all virtual retail channels of the Group, the growth momentum of revenue continued to increase. – Mainland China: Continue to grow as a franchise chain, deploy new channels for TV shopping, e-commerce, etc., and introduce European and Korean brands to promote e-commerce business, while expanding the group’s multi- brand and multi-national product richness. Looking to the future, the Group will continue to enhance its competitiveness, consolidate its core business, and at the same time explore new business opportunities for innovation, and establish a steady, innovative and continuous growth.